Ace Limited v. Capital Re Corp.

Ace Limited (Ace) (plaintiff) paid $75 million to Capital Re Corp. (Capital) (defendant) for 12.3 percent of Capital stock. Ace and Capital then negotiated a merger agreement. Under the agreement, Capital would retain control, but Capital shareholders would receive .6 of a share of Ace stock in exchange for each share of Capital stock. The agreement included a “no-talk” provision (§ 6.3) that barred Capital from negotiating or giving information to a third party about a possible proposal unless (1) Capital’s board determined that the proposal was likely to produce a better deal, (2) the board “in good faith…based on the written advice of its outside legal counsel” concluded it was required to negotiate or risk breaching fiduciary duties, (3) the party signed a confidentiality agreement, and (4) Ace was given notice that Capital intended to negotiate. Ace had shareholder agreements with 33.5 percent of Capital’s shareholders. Therefore, unless Capital’s board acted to terminate the agreement, Ace was practically guaranteed enough votes for the merger, even if a better offer was made. Capital entered discussions with XL Capital (XL) about a competing offer without written advice of outside counsel. Capital’s board wanted to terminate the agreement with Ace and accept a better offer from XL. Ace requested a temporary restraining order against Capital from the Delaware Chancery Court barring Capital from terminating the agreement.